Amazon Passes Tax Milestone

This file picture taken on November 13, 2012 in Paris shows shows the “Amazon” logo.

AFP

Beginning Friday, the majority of U.S. consumers will have to pay sales tax on their Amazon.com Inc. purchases.

That’s a milestone of sorts for the retail giant, which has spent years trying to avoid collecting the tax, a leg up over brick-and-mortar retailers. Laws that take effect in Massachusetts, Connecticut and Wisconsin Friday mean about 163 million Americans in 16 states will have to pay tax on their diapers, books and other goods on Amazon.

Many state laws affecting sales tax target Amazon because of its relationship with affiliates who send Web traffic its way in exchange for commissions. The states are relying on a 1992 U.S. Supreme Court decision that permits them to require retailers to collect sales tax only when the retailer has operations in the state.

Amazon continues to fight sales taxes, but its position has softened. The company supports a bill that would apply an online sales tax nationwide, in order to level the playing field with e-commerce rivals who don’t have affiliates.

But Amazon is challenging the rules in New York, where it has collected the levies since 2008, and hopes to have its case heard before the U.S. Supreme Court. In Minnesota and Missouri, it recently cut off local partners who may have triggered a sales tax under new ordinances.

The impact of sales tax on where consumers shop is hard to quantify, particularly for lower-priced items that would otherwise require a trip to a local store. Stanford University economists found in a February study that buyers on eBay shopped around for the lowest state sales tax, but they didn’t directly address whether the existence of an online sales tax encouraged buyers to shop in brick-and-mortar stores.

A Wells Fargo analyst in September 2012 found in a survey of 1,000 Texans that consumers didn’t change their buying habits when a sales tax took effect. Overstock.com Executive Vice Chairman Jonathan Johnson said in an interview that sales tax had had “very little impact” on the e-commerce company’s sales after it opened a warehouse in Pennsylvania, one of just three states where it collects the tax.

Tucker Weinmann, a 24-year-old actor in Atlanta, a 4% sales tax imposed in Georgia in September hadn’t altered his spending behavior. “Of course I would prefer there wasn’t the tax, but with the two-day shipping I still do pretty much all of my shopping on Amazon,” said Mr. Weinmann.

Still, Amazon seems to believe that it’s worth fighting to protect its tax-free status for as long as possible in the remaining 34 states.

That’s long been an Amazon obsession. Founder Jeff Bezos set up shop in Washington State because it was smaller than other tech-savvy locales like California, so fewer customers would have to pay tax.

Now, Amazon is on a building spree. It has opened or is constructing six new facilities in California and Texas, the two biggest U.S. states, and has sites planned for Florida and Connecticut.

For its part, California, which began requiring online sales tax collection in September 2012, has already reaped $263 million in tax revenue, according to the state Board of Equalization.

In several states that were considering imposing taxes, Amazon negotiated for tax breaks on new warehouses. In Kenosha, Wis., Mayor Keith Bosman said he’d helped oversee a $17 million tax increment financing offer to lure the retailer to his city, between Chicago and Milwaukee. Amazon said it would create 1,100 jobs at the warehouse. With unemployment at 9%, “this is certainly very meaningful for us,” said Mr. Bosman.

Paul Misener, Amazon’s vice president of global public policy, reiterated that the company supports the national sales tax bill, which would permit states to collect sales tax even when a retailer doesn’t have a physical presence.